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There Is No Saving the Case for Industrial Policy

Mr. W__ alleges that my opposition to industrial policy “must be explained only by [my] dogmatic faith in the magic of imaginary free market forces.”

Mr. W__:

You write, in support of industrial policy, that “[t]here is no guarantee that we’ll get optimum comparative advantage under the free market.”

Of course not. Nothing in life, save death, is guaranteed. That standard is inappropriate because meeting it is impossible. The relevant question here is this: Under which policy – free markets or government direction – are individuals as producers most likely to discover, and be able to take advantage of, opportunities to specialize in ways that maximize their prospects for leading lives that are as fulfilling as possible?

I submit that the answer to this question is free markets (with, of course, free trade). My reasons are many. Here are only two.

First, no one is in as good a position as is each individual to judge well for himself or herself what sorts of productive talents are best for him or her to develop and use. What makes you think that mandarins charged with designing and implementing industrial policy know, or can possibly know, what are the ‘optimum’ jobs and professions for each of hundreds of millions of workers?

Second, what makes you think that even if these mandarins were blessed with the knowledge of gods that they’d use this knowledge as would angels? I’m aware that Oren Cass does not find public-choice arguments to be compelling, but I’m at a lost to understand why he – and, I assume, also you – think this way. The fact that we can imagine government officials and voters sacrificing their own welfare for the sake of the general welfare is true but trite, for we can also imagine private business persons and consumers making such sacrifices. Yet I doubt that you’d find compelling any plea for laissez faire grounded in the claim that business people and consumers will generally act in ways that promote the public good even when doing so runs counter to their own self-interest.

I trust people in the market to act in pro-social ways because, being unable to coerce others, they can improve their own well-being only by helping others improve their well-being. But I distrust these same people to act in pro-social ways if they are given the power to coerce others. “Do as I demand or I’ll shoot you” conduces to far fewer mutually beneficial outcomes than does “Do as I ask and I, in return, will do as you ask.” My conclusion here relies on no belief in magic.

It won’t do here to recite grade-school declarations about how democratic voting binds government officials to the task of carrying out the will of the people. It doesn’t, not least – yet not only – because there is no meaningful “will of the people.” Read Kenneth Arrow. Read James Buchanan. Read Anthony Downs. Read Gordon Tullock. Read George Stigler. Read Bill Niskanen. Read Bob Tollison. Read Richard Wagner. Read Dwight Lee. Read Bob Higgs. Read Bruce Yandle. Read Randy Holcombe. Read Geoff Brennan and Loren Lomasky. Read Bryan Caplan. Read Christopher Achen and Larry Bartels. The notion that regular, fair elections with a wide franchise are sufficient, even when supplemented with an honest and independent judiciary, to ensure that politicians and bureaucrats can be trusted to use discretionary power to promote the public interest is, frankly, bonkers.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030